Economic growth beats forecasts as exports increase

Despite the steady GDP figure, business maintains that cautious consumers are witholding spending, which is damaging the whole economy. Photo: Bloomberg

Jacob Greber Economics correspondent

The economy expanded slightly below-average pace last quarter, just beating expectations, after modest gains in exports.

Gross domestic product rose 0.6 per cent in the June quarter in the three months from April, when it rose a downwardly revised 0.5 per cent (from 0.6 per cent), the Australian Bureau of Statistics said on Wednesday.

For the same period a year earlier, GDP rose 2.6 per cent. Economists had forecast a rise of 0.5 per cent and 2.4 per cent respectively.

A separate report showed earlier that activity in the services sector is at its lowest level since the global financial crisis despite lower interest rates and a falling Australian dollar.

The Australian Industry Group Australian Performance of Services Index (PSI) fell 0.4 points to 39.0 in August.

A reading below 50 indicates the sector is contracting. The lower the number the faster the contraction.ECONOMY VIDEO - DO NOT REMOVE

Public spending keeping Australia strong: Rudd

Prime Minister Kevin Rudd said the latest figures underline the continued strength of the economy, and reinforced that recessions are beyond the lived experience of any Australians under the age of 40.

“Even if you cannot remember what a recession is like, bear in mind how easy it is to fall into one,” Mr Rudd said in Melbourne.

He said one-third of the 0.6 per cent rise in GDP during the June quarter was driven by government spending.

“Public investment still – in these difficult global circumstances – is a fundamental part of keeping the Australian economy strong.

“Pulling the plug on public investment prematurely by massive cuts places continued growth at risk.”

Consumers are the problem

The Australian Industry Group chief executive Innes Willox said many key services industries were still under stress.

“Cautious consumers are keeping their hands in their pockets and are reluctant to take on debt,” he said. ”This is keeping a lid on discretionary spending on retail goods, entertainment services and hospitality, which has consequences in turn for wholesale traders and freight transport.”

Mr Willox said the business orientated services sectors such as finance, communications and transport were still subdued because of weak activity in the manufacturing and construction sectors.

”Despite a slight improvement in new orders in August, the reading of under 40 points suggests a meaningful recovery in activity is still some way off,” he said.